Chinese Securities Firms Are Ballooning, And That Has Experts Worried

Chinese securities firms saw their assets
under management (AUM) balloon to 1.2 trillion yuan at the
end of 2012, up from 280 billion yuan at the start of 2012,
according to the latest data from Securities Association of
China.

"In a typical bank-to-securities company asset management
agreement, the bank entrusts the securities firm with funds
raised from wealth management products, and the securities firm
uses the money to buy the bank's notes or invest in other types
of financial instruments.

The arrangement allows the bank to shift assets off its balance
sheet and circumvent lending restrictions. The securities firm,
in return, charges the bank a fee for using its service."

A quick reminder: The Chinese trust industry more than doubled in
the past two years to about six trillion yuan by the end of
September 2012 and got on the radar of regulators.

But these trust companies were highly leveraged and considered
risky, and in an effort to curb shadow banking, Chinese
regulators ordered them to cap the value of trusts tied to bank
loans at 30 percent of their total outstanding products and
required banks to include loans made through trust companies on
their balance sheets.